Exhibiting the best of all three traits, these seven stocks trade for reasonable valuations, pay great dividends, and project high earnings growth. Any investor that wants to remain cautious in today’s market but does not want to be left behind if this historic rally continues can confidently buy these stocks.
Most of my columns on these pages are devoted to small cap “off the radar” concerns, biotech stocks that make logical buyout targets, home builders whose growth trajectories are undervalued by the market and similar topics. I rarely write about solid growth and income plays as they are as about exciting as watching paint dry.
However, a good portion of my own portfolio is tied up in these sort of equities as their stability and income allows me to go out on the risk curve with my small cap or biotech holdings while not taking an undue amount of risk from a portfolio perspective.
Today, we are going to highlight a few names that are typical of the holdings in that portfolio that are geared towards hitting consistent “singles”, so I can try for some “home runs” in the other areas of my holdings.
Amgen (NASDAQ: AMGN) should be a core large cap holding in any well-managed and well-diversified biotech portfolio. This biotech pioneer has been around for decades and continues to churn out about 10% earnings growth on revenue increases in the mid-single-digits.
The company is going to be a major player in the emerging biosimilar market which should be over a $30 billion annual market a decade out. Last week, the European Ad Comm panel recommended the company’s Humira biosimilar for approval.
Humira is the best-selling drug in the world and will soon lose patent protection in Europe and in the United States a few years later. Amgen should have five biosimilar products approved between 2017 and 2019. These biologics should be producing at least $3 billion in annual revenues for the company by 2020. The company has consistently raised its dividend over the past five years and currently yields just under three percent. The stock is solid long-term value at 13 times forward earnings as well.
Merck (NYSE: MRK) is another well-known pharma name that yields right around three percent right now. Its immunotherapy drug Keytruda has recently received some traction and looks like an emerging blockbuster. The FDA should approve it for two additional indications in March and the stock is a good long-term play.
I continue to avoid Utilities and Consumer Staple stocks which are traditional dividend sectors. There is little in the way of earnings or revenue growth in either sector currently and valuations are also stretched on a historical perspective. There are better bargains to be had in some sub-sectors of the real estate investment trust space for good income plays with a tad of growth mixed in as well.
I particularly like the lodging part of the REIT sector as the markets have become over concerned about a slowdown in overseas visitors thanks to a strong dollar. I also think interest rates will stabilize after a significant post-election spike. I own and have profited from several names in this group including Diamondrock Hospitality (NYSE: DRH), Chatham Hospitality (NYSE: CLDT) and Hersha Hospitality (NYSE: HT). All are well-managed concerns, yield north of five percent, have reasonable long-term growth prospects and the latter two have also seen some significant insider buying of late as well. They are in my “buy, hold and forget” category.
Growth has slowed considerably over the past couple of years at Las Vegas Sands (NYSE: LVS) due to Chinese leadership’s crackdown on corruption in the country as well as large capital expenditures for a huge new resort and casino. The crackdown slowed traffic to the gambling enclave of Macau considerably. Las Vegas Sands gets most its revenue and earnings from Macau as it is the biggest gambling center in the world and dwarfs Las Vegas as far as gaming revenues.
However, that traffic started to pick up late last year and it appears the Chinese New Year holiday brought many visitors to the gambling enclave which bodes well for 2017. In addition, the company’s 3,000 room Parisian Macau opened late in the third quarter of last year. This will boost revenues going forward and dramatically cut the firm’s capital expenditure needs in 2017 and 2018.
The company’s luxury retail space and its casinos are probably worth $10 billion or more and are given very little value in the market as well. With growth prospects improving, the company is good value especially given the stock yields north of five percent.
General Motors (NYSES: GM) does not seem to be getting the respect it deserves in the market. Yes, the new POTUS has injected himself in the conversation about where auto makers should locate plants. However, his administration will also probably give the car companies more leeway when it comes to rising fuel standards and other regulations, helping their bottom lines significantly.
Domestic vehicle sales have probably plateaued but if gas prices remain low, high margin trucks and SUVs should remain the biggest part of the overall sales mix which is good for the bottom line. The company is also seeing more than solid growth in China through joint ventures. The stock is cheap at six times earnings and an over four percent yield.
Note: Bret Jensen is the lead equities analyst with Investors Alley. He’s the editor of newsletters including The Growth Stock Advisor and Biotech Gems.
Source: 7 Stocks To Buy For Growth, Value, And Yield by